ANDHRA SOCIAL & CULTURAL ASSOCIATION,CHENNAI vs. ACIT NON CORPORATE CIRCLE 1, CHENNAI

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER: All the five appeals of the assessee are directed against the common order passed by the Commissioner of Income Tax (Appeals) -2, Chennai, dated 28.02.2018 and pertain to assessment years 2005-06,

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2006-07, 2007-08, 2008-09 and 2009-10. Therefore, we heard these

appeals together and disposing the same by this common order.

assessee, submitted that the appeals of the assessee are directed

against the order of the Commissioner of Income Tax (Appeals)

confirming the penalty levied by the Assessing Officer under Section

271(1)(c) of the Income-tax Act, 1961 (in short 'the Act'). Referring to the

penalty order, the Ld. representative submitted that the assessee is

admittedly a cultural association known as club. By mistake, according to

the Ld. representative, the assessee filed the return of income

continuously before the Exemption Circle claiming exemption under

Section 11 of the Act as if it was registered under Section 12A of the Act.

Referring to the paper-book, more particularly pages 73-77, the Ld.

representative submitted that the Chartered Accountant at that point of

time was Shri V. Anantharaman. On his advice, the return was filed

before Exemption Circle. Subsequently, for the assessment year 2005-

06, the present auditor was engaged to file the return of income.

According to the Ld. representative, there was a change in the

management committee of the association also. The earlier mistake

committed by the previous committee members and Chartered

Accountant was continued during this year also. Therefore, according to

3 I.T.A. Nos.1421 to 1425/Chny/18

the Ld. representative, the present Chartered Accountant was also under

the impression that the association was registered under Section 12A of

the Act and eligible for exemption under Section 11 of the Act.

assessee further submitted that the assessee is a club, therefore, eligible

for exemption under the “principle of mutuality”. In other words,

according to the Ld. representative, when a group of people joined

together to form an association for having their own engagements, there

cannot be any profit accrued in respect of transactions among the

members of the association. Therefore, according to the Ld.

representative, income of the association is eligible for exemption in view

of the mutuality involved in the transactions. According to the Ld.

representative, the assessee-association made fixed deposit in the banks

and interest income therefrom was disclosed to the Department and

claimed exemption under Section 11 of the Act. According to the Ld.

representative, the assessee has disclosed entire transactions, entire

income and its sources and claimed exemption under Section 11 of the

Act. The Assessing Officer rejected the claim of the assessee on the

ground that assessee-association was not a registered one under

Section 12A of the Act, therefore, not eligible for exemption under

Section 11 of the Act. Referring to the claim of the assessee that it is a

4 I.T.A. Nos.1421 to 1425/Chny/18

mutual association, therefore, principle of mutuality would be applicable,

the Ld. representative submitted that the Assessing Officer found that the

principle of mutuality may not be applicable in respect of interest income

and rental income from land and STD booth. Therefore, she disallowed

the claim of the assessee and also levied penalty under Section 271(1)(c)

of the Act. The Ld. representative placed his reliance on various

judgments of High Courts and Apex Court and submitted that the penalty

under Section 271(1)(c) of the Act cannot be levied unless there was

concealment of income or furnishing of inaccurate particulars of income

by the assessee. In this case, according to the Ld. representative, entire

income was disclosed and there was no concealment of income or

furnishing of inaccurate particulars of income. Hence, according to the

Ld. representative, the levy of penalty is not justified.

Representative, submitted that the assessee-association is a club and it

is not registered under Section 12A of the Act. According to the Ld. D.R.,

the assessee claimed exemption under Section11 of the Act and also

claimed exemption on principle of mutuality. Since the interest income

and rental income were received from third parties, who are not members

of the association, the Assessing Officer by placing reliance on the

various judgments of the High Court and Supreme Court, found that the

5 I.T.A. Nos.1421 to 1425/Chny/18

assessee is not eligible for exemption. Therefore, according to the Ld.

D.R., the Assessing Officer levied penalty under Section 271(1)(c) of the

Act for not offering the income for taxation.

perused the relevant material available on record. It is not in dispute that

the assessee-association / club is not registered under Section 12A of

the Act. Therefore, the assessee is not eligible for exemption under

Section 11 of the Act. However, it is an organization where mutuality is

involved in the transactions. Whenever there were transactions among

the members of the same association, there cannot be any profit

available for taxation. In this case, the assessee received interest

income from bank and rental income from third parties. The bank and

the lessee are not members of the association, therefore, the rental

income and interest income cannot be claimed as exemption under the

principle of mutuality. This Tribunal is of the considered opinion that

principle of mutuality is available only in respect of members of the club

or association and not in respect of income accrued from third parties.

The assessee has disclosed the rental income and interest income.

However, the same was not offered for taxation claiming the same as

exemption either under Section 11 or under the principle of mutuality.

6 I.T.A. Nos.1421 to 1425/Chny/18

disclosed the entire income and its sources and claimed the same as

exemption either under Section 11 or under the principle of mutuality,

whether any penalty under Section 271(1)(c) of the Act can be levied?

We have carefully gone through the provisions of Section 271(1)(c) of the

Act, which reads as follows:-

of the Act if he is satisfied that the assessee has concealed the

particulars of income or furnished inaccurate particulars of such income.

In this case, the assessee has furnished entire details of income

including its sources and claimed exemption under Section 11 of the Act

and under the principle of mutuality. The question arises for

consideration is when the assessee has furnished entire details of

7 I.T.A. Nos.1421 to 1425/Chny/18

income and its sources and claimed exemption either under Section 11 of

the Act or under the principle of mutuality, can we say that the assessee

has concealed the particulars of its income or furnished inaccurate

particulars of such income? It is not the case of the Revenue that the

assessee has furnished any inaccurate particulars of the sources of

income or rental income. It is also not the case of the Revenue that the

assessee has concealed any part of its income. It is the definite case of

the Revenue that the assessee by claiming exemption under Section 11

of the Act and under the principle of mutuality has not offered the interest

income and rental income for taxation. Therefore, mere claim of

exemption under Section 11 or under principle of mutuality, cannot be

construed as furnishing inaccurate particulars of income or concealing

the particulars of income. Therefore, this Tribunal is of the considered

opinion that this is not a fit case for levy of penalty under Section

271(1)(c) of the Act.

the orders of the authorities below. Accordingly, the orders of both the

authorities below are set aside and the penalty levied by the Assessing

Officer as confirmed by the CIT(Appeals) is deleted.

allowed.

8 I.T.A. Nos.1421 to 1425/Chny/18

Order pronounced in the court on 3rd September, 2019 at Chennai.

sd/- sd/- (एस. जयरामन) (एन.आर.एस. गणेशन) (S. Jayaraman) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member चे�नई/Chennai, �दनांक/Dated, the 3rd September, 2019.

Kri.

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A)-2, Chennai 4. Principal CIT, Chennai-1, Chennai 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.